Unite Group Plc · LSE:UTG
Unite — FY2021 Earnings Presentation
47 slides from Unite's earnings presentation, Feb 23, 2022
Slide 1: Return to growth: Preliminary results 2021
Return to growth Preliminary results For the year ended 31 December 2021 23 February 2022
Slide 2: Contents
Contents 1. Performance highlights 2. Financial review 3. Operations review 4. Property review 5. Outlook 6. Q&A 7. Appendices 2
Slide 3: Performance highlights
1 Performance highlights Richard Smith, Chief Executive 3
Slide 4: Delivering against our strategy
PERFORMANCE HIGHLIGHTS Delivering against our strategy HOME FOR SUCCESS Delivering for our Attractive returns for A responsible and resilient customers and universities shareholders business Record customer NPS1 Strong recovery in earnings Launch of Sustainability Strategy Reputation with universiti
Slide 5: Return to growth
PERFORMANCE HIGHLIGHTS Return to growth 31 Dec 31 Dec % 2021 2020 Change • Strong recovery in performance in 2021 • Adjusted EPS +15% Adjusted Earnings £110.1m £91.6m +20% • EPRA NTA +8%, driving 10.2% total accounting return • 94% occupancy and 2.3% rental growth for 2021/22 Adjusted EPS 27.6p 24.0
Slide 6: Higher Education update
PERFORMANCE HIGHLIGHTS Higher Education update 000s Full-time student numbers 2,500 2,176 2,235 1,940 2,015 1,848 1,902 2,000 • Record student numbers for 2021/22 1,500 • Increased participation rate for UK students 1,000 • Record non-EU demand offsetting Brexit impact on international student numbe
Slide 7: A responsible and resilient business
PERFORMANCE HIGHLIGHTS A responsible and resilient business • Progress in delivery of our environmental strategy • Leadership through responsible investments • Publication of Sustainability Strategy and net zero carbon • Over £100m of financial support for students during pathway, with targets valid
Slide 8: Opportunities to grow our platform
PERFORMANCE HIGHLIGHTS Opportunities to grow our platform High-quality Targeted University Market share Young developments acquisitions partnerships gains professional from HMO renters £1bn secured Focus on On- and off- pipeline strongest campus Addressable Growing demand markets opportunities marke
Slide 9: Financial review
2 Financial review Joe Lister, Chief Financial Officer 9
Slide 10: Strong financial performance
FINANCIAL REVIEW Strong financial performance 31 Dec 2021 31 Dec 2020 % Change Income statement Adjusted earnings £110.1m £91.6m +20% Adjusted EPS 27.6p 24.0p +15% Dividend per share 22.1p 12.8p +73% Balance sheet EPRA NTA per share 882p 818p +8% Loan to value 29% 34% Cash flow Operations cash flow
Slide 11: Earnings growth through occupancy recovery
FINANCIAL REVIEW Earnings growth through occupancy recovery 31 Dec 2021 31 Dec 2020 £m £m Rental income 282.7 263.2 Property operating expenses (90.9) (82.9) Net operating income (NOI) 191.8 180.3 NOI margin 67.8% 68.5% Management fees 15.9 14.0 Overheads (31.5) (30.9) Finance costs (63.3) (64.9) De
Slide 12: Earnings growth
FINANCIAL REVIEW Earnings growth • c.£10m impact of rent discounts for January–March 2021 • 94% occupancy and 2.3% rental growth for 2021/22 (2020/21: 88%, (0.6%)) • Unwind of certain non-recurring cost savings from 2020 Recovery of impact of tenancy cancellations in term 3 of 2019/20 Reduced occupa
Slide 13: Targeting improvement in EBIT margin
FINANCIAL REVIEW Targeting improvement in EBIT margin • Opex increase in 2021 reflects reversal of certain non- recurring savings made in 2020 Breakdown of property • Higher staff costs, utilities usage and increased operating expenses summer cleaning due to higher occupancy (2021) • 2021/22 sales s
Slide 14: Growth outlook for 2022 earnings
FINANCIAL REVIEW Growth outlook for 2022 earnings • Guidance for 41-43p of EPRA EPS for FY2022 • Maintain dividend payout of 80% for 2022 £m FY2021 FY2022 Comment Occupancy: 2020/21 88% - 2021/22 94% 94% 2022/23 - 97% Term 2 and 3 175 195 Higher occupancy and impact of £10m of rental discounts in 20
Slide 15: Longer term earnings growth outlook
FINANCIAL REVIEW Longer term earnings growth outlook • High visibility over earnings recovery and future growth • Confident of return to full occupancy • Pipeline de-risked by university partnerships • Rental growth underpinned by nominations • EBIT margin improvement to above 72% • 6.2% yield on £1
Slide 16: NAV growth
FINANCIAL REVIEW NAV growth • 8% increase in EPRA NTA in 2021 • Investment portfolio valuations benefited from rental growth and occupancy recovery • 12 basis point compression in property yields • £23m provision made in 2021 for fire safety capex, covering 24 properties • £42m recognised in 2021 fo
Slide 17: Delivering attractive returns
FINANCIAL REVIEW Delivering attractive returns • Anticipate total accounting returns of 9.0-10.5% for 2022, excluding yield movements • Reflects growing recurring earnings, rental growth and key development milestones • Allows for £1,000/bed investment in protective capex 2021 2022 Comment EPS yield
Slide 18: Protecting our portfolio
FINANCIAL REVIEW Protecting our portfolio • Our portfolio investment plan includes £1,000/bed p.a. of protective spend 1. Sustainability (c.£200/bed): <10 year blended payback through utility cost savings 2. Lifecycle (c.£300/bed): Ongoing investment to maintain and enhance our estate 3. Fire safety
Slide 19: Ongoing capital discipline
FINANCIAL REVIEW Ongoing capital discipline Key debt statistics (Unite share) 31 Dec 2021 31 Dec 2020 • Robust balance sheet with significant investment Net debt £1,522m £1,742m capacity LTV 29% 34% • LTV of 29% (2020: 34%) Net debt:EBITDA ratio 8.3 10.1 • Built-out LTV of 35% post-pipeline and fire
Slide 20: Strong performance by co-investment vehicles
FINANCIAL REVIEW Strong performance by co-investment vehicles Summary financials USAF LSAV • Recovery in returns in 2021 £m £m • Increase in management fees driven by NOI and 2,867 1,819 GAV valuation growth Net debt (806) (628) • Strong yield compression for LSAV’s London portfolio Other assets/(li
Slide 21: Operations review
3 Operations review Karan Khanna, Chief Customer Officer 21
Slide 22: Strong demand outlook
OPERATIONS REVIEW Strong demand outlook Occupancy and rental growth 5% 98% 98% 97% 100% 94% • Improved operating performance 4% 88% 3.0-3.5% 80% • 94% of beds let for 2021/22 3% 60% • Healthy outperformance of peers (83%1) 2% 3.2% 3.4% 40% 1% 2.3% • Rental growth impacted by voids in some cities (0.
Slide 23: Valuable university partnerships
OPERATIONS REVIEW Valuable university partnerships Nomination agreements • 37,359 beds now let to universities Beds Beds % Income Length • 51% of total beds for 2021/22 2021/22 2020/21 2021/22 • Expect increase to c.55% weighting in medium term Single year 14,529 17,709 38% 2-5 years 7,754 5,748 22%
Slide 24: Enhancing our best-in-class platform
OPERATIONS REVIEW Enhancing our best-in-class platform Net Promoter Scores (Autumn 2021) +50 • Success in attracting students from HMO +40 +39 • Improving perceptions for non-1st years +30 +22 • 33% increase in UK direct-let bookings in +20 +20 past two leasing cycles +10 • Ongoing investment in pro
Slide 25: Property review
4 Property review Nick Hayes, Group Property Director 25
Slide 26: Strong investment appetite
PROPERTY REVIEW Strong investment appetite UK PBSA investment volumes • PBSA continues to attract significant volumes of capital £bn 8 Liberty Living iQ 6 • 2021 transaction volumes reflect limited stock • New and recent entrants seeking to grow scale 4 • Increasing focus on operating platforms to d
Slide 27: Enhancing our portfolio
PROPERTY REVIEW Enhancing our portfolio YoY rental growth (2021/22) 4% • Return to rental growth in 2021/22 3% • 3.3% growth in direct-let pricing reflects demand Weekly price +3.7% Tenancy length -0.3% in strongest markets 2% Mix effect -0.1% 3.3% • Nomination agreements reflect low RPI in 2020 1%
Slide 28: New supply slowing
PROPERTY REVIEW New supply slowing New supply of PBSA beds 40,000 • PBSA now provides homes to 700,000 students • 365,000 bed shortfall to 1st year and 30,000 international students 20,000 • Widening awareness of PBSA’s benefits among 10,000 non-1st year students 0 • 23,000 new beds delivered in 202
Slide 29: Secured development pipeline
PROPERTY REVIEW Secured development Target delivery Secured beds Total completed value Total development costs Forecast yield on cost pipeline Direct-let development (£m) (£m) Derby Road, Nottingham 2023 700 84 58 8.0% • Secured pipeline of c.6,000 beds for delivery by 2026 Wyvil Road, London1 2024
Slide 30: Campbell House, Bristol: evolving our customer offer
PROPERTY REVIEW Campbell House, Bristol Evolving our customer offer • Development pipeline adds scale in strongest university cities • Tailoring our customer proposition to enable greater segmentation • Dedicated postgraduate offer • Mix of cluster sizes • Enhanced amenity space • Trialling non-stud
Slide 31: Outlook
5 Outlook Richard Smith, Chief Executive 31
Slide 32: Positioned for growth
OUTLOOK Positioned for growth • Sector outlook remains strong • Significant demographic growth • Rising participation rates • Growing international student numbers • Alignment to the strongest universities • Significant growth opportunities • High-quality developments • Targeted acquisitions • Unive
Slide 33: Q&A
6 Q&A 33
Slide 34: Appendices
7 Appendices 34
Slide 35: Home for Success
APPENDIX Home for Success • All-inclusive pricing Of customers • All utilities, insurance and services 86% using MyUnite app • High-speed WiFi (200 Mbps) • MyUnite app • Maintenance teams on hand • Help when it’s needed Of customers used • 24/7 customer support centre 79% online check-in • Customer
Slide 36: Leading in fire safety
APPENDIX Leading in fire safety Fire safety capex • Fire safety is a critical part of our strategy • Linked to our Home for Success purpose Spent to date £18m1 • One of the first companies to remove ACM Provision, Dec-2021 £55m1 cladding • Replacement of HPL is fully provided for and now underway Fu
Slide 37: High quality, affordable accommodation
APPENDIX High quality, affordable accommodation • Value-for-money is the most important factor influencing students’ decisions on where to live • Our accommodation is comparable in cost to HMO • Before allowing for the additional product and service features we provide • Covid-19 has demonstrated th
Slide 38: Portfolio overview
APPENDIX Portfolio overview Geographical breakdown of portfolio Aberdeen 2021 Completed beds Full-time student City rank (21/22) numbers (20/21) Edinburgh 1 London 11,654 381,575 Glasgow 2 Liverpool 6,365 55,140 7 Newcastle 3 Birmingham 5,919 76,855 Durham 4 Manchester 5,620 71,450 5 Leeds 5,610 65,
Slide 39: Portfolio and customer breakdown
APPENDIX Portfolio and customer breakdown Customers by domicile Customers by year of study Distribution of beds Distribution by weekly of beds price by weekly Postgraduate, 30% price 2021/22 2020/21 13% 30% 20% UK 70% 66% 20% Returning 10% Undergrad., 10% 1st year Non-EU 25% 25% 20% Undergrad., 0% 0
Slide 40: EPC ratings
APPENDIX EPC ratings EPC ratings by floorspace1 40% • 57% of portfolio is currently A-C rated 36% 36% 35% • Fully compliant with current regulations 30% • Improvement projects for a further 5% of floorspace in 2022 25% 24% 22% • Developments targeting ‘A’ rating 20% 20% 18% 16% 16% • Variety of impr
Slide 41: Income growth outlook
APPENDIX Income growth outlook Annualised NOI (Unite share) • High visibility over income recovery and future growth • Confident of return to full occupancy • 6.2% yield on £1bn development pipeline • 2021 impacted by rental discounts in Q1 • Pipeline de-risked by University partnerships • Resumptio
Slide 42: Rental portfolio analysis December 2021
APPENDIX Rental portfolio analysis 31 December 2021 Wholly owned USAF LSAV Lease Total Unite share London Value (£m) 16 2,835 1,733 849 425 1,545 Beds 2,882 1,863 6,649 260 11,654 35% Properties 1 31 10 6 14 Prime regional Value (£m) - 24 1,709 1,169 993 692 Beds 7,645 5,337 - 618 13,600 24% Propert
Slide 43: EPRA performance measures
APPENDIX EPRA performance measures 2021 2020 2021 2020 £m £m Pence per share Pence per share EPRA Earnings 152.0 97.3 38.1 25.5 Adjusted earnings 110.1 91.6 27.6 24.0 EPRA NTA 3,536.1 3,271.0 882 818 EPRA NRV 3,829.7 3,601.9 955 901 EPRA NDV 3,503.6 3,180.7 874 796 EPRA net initial yield 4.0% 3.8% E
Slide 44: EPRA capital expenditure
APPENDIX EPRA capital expenditure 2021 2020 £m Wholly owned Share of JVs Group share Wholly owned Share of JVs Group share Acquisitions - - - - - - Developments 81.4 - 81.4 87.6 - 87.6 Rental properties London 4.8 3.1 7.9 0.6 1.9 2.5 Prime regional 16.7 2.9 19.6 2.7 0.8 3.5 Major regional 8.1 10.8 1
Slide 45: Summary EPRA balance sheet and earnings statement
APPENDIX Summary EPRA balance sheet and earnings statement USAF LSAV Unite Group Unite Group £m Wholly owned (Unite share) (Unite share) 2021 2020 Balance sheet Rental properties 3,323 632 910 4,865 4,893 Leased properties 98 - - 98 102 Properties under development 324 - - 324 187 Total property por
Slide 46: Debt facilities
APPENDIX Debt facilities On-balance sheet Co-investment vehicles Facility Drawn Maturity Facility Drawn Maturity £m £m £m £m Unsecured USAF Sustainable RCF Secured bond 775 775 2023-25 450 125 2025 (HSBC/RBC/RBS) Unsecured bond (Unite) 275 275 2028 RCF (Wells Fargo) 150 135 2024 Unsecured bond (LL)
Slide 47: Secured development and partnerships pipeline
APPENDIX Secured development and partnerships pipeline Target Secured Total completed Total Capex in period Capex remaining Forecast NAV Forecast yield on delivery beds value development (£m) (£m) remaining cost (£m) costs (£m) (£m) Direct-let development Derby Road, Nottingham 2023 700 84 58 11 45